UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549





FORM 10-Q





x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2011





 ̈  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission file number 000-26309





INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.


(Exact name of registrant as specified in its charter)





Nevada
98-0200471(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)





4235 Commerce StreetLittle River, South Carolina

29566(Address of principal executive offices)

(Zip Code)





(843) 390-2500


(Registrant’s telephone number, including area code)





Copies of Communications to:


Alfred V. Greco, PLLC


199 Main Street, Suite 706


White Plains NY  10601


(914) 682-3030


Fax (914) 682-3030





Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x    No  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes  ̈   No  ̈





Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer   ̈
Accelerated filer   ̈Non-accelerated filer   ̈ (Do not check if a smaller reporting company)
Smaller reporting company  x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  ̈    No x





The number of shares of Common Stock, $0.001 par value, outstanding on April 25, 2011, was 117,269,141 shares.









PART I – FINANCIAL INFORMATION



Item 1. Financial Statements.



Integrated Environmental Technologies, Ltd.Condensed Consolidated Balance Sheets  March 31,


December 31,2011


2010Unaudited


AuditedAssetsCurrent Assets:Cash

$
374,622


$
65,660Accounts receivable


47,959



50,256Lease Receivable


16,364



13,909Inventory


219,610



195,372Prepaid expenses


18,073



21,707Total current assets


676,628



346,904Building and equipment, net


335,437



38,270Lease Receivable, long-term


25,493



29,091$
1,037,558


$
414,265LiabilitiesCurrent liabilities:Accounts payable

$
261,055


$
265,780Accrued expenses


143,597



139,789Notes payable


450,000



250,000Convertible notes


275,000



265,318Total current liabilities


1,129,652



920,887Commitments and ContingenciesShareholders’ DeficiencyPreferred stock 50,000,000 shares authorized; par value $.001; - shares issued and outstanding


-



-Common stock 200,000,000 shares authorized; par value $.001; 117,069,141 and 108,496,641 shares issued, respectively


117,069



108,497Common stock bought not issued, - and 135,000 shares, respectively


-



135Paid-in capital


13,837,616



13,186,988Accumulated deficit


(14,046,779
)


(13,502,356
)Total shareholders’ deficiency


(92,094
)


(206,736
)Total liabilities and shareholders’ deficiency

$
1,037,558


$
714,151




See notes to condensed consolidated financial statements.




2




Integrated Environmental Technologies, Ltd.Condensed Consolidated Statements of Operations(Unaudited)  For The Three Months

Ended March 31,2011


2010Sales

$
27,510


$
67,219Leasing and Licensing Fees


12,000



718Total revenue


39,510



67,937Cost of sales


19,814



33,361Gross profit


19,696



34,576General and administrative expense


329,931



255,807Sales and marketing expense


122,714



143,012Research and development expense


74,689



89,480Total operating expenses


527,334



488,299Loss from operations


(507,638
)


(453,723
)Other income (expense):Finance fees and other


(9,310
)


(52,838
)Interest expense


(27,475
)


(8,253
)Total other income (expense)


(36,785
)


(61,091
)Net loss

$
(544,423
)

$
(514,814
)Weighted average shares outstanding


111,353,308



101,335,722Net loss per share basic and diluted

$
(0.00
)

$
(0.01
)




See notes to condensed consolidated financial statements.




3




Integrated Environmental Technologies, Ltd.Condensed Consolidated Statements of Cash FlowsUnaudited


For The Three Months

Ended March 31,2011


2010Cash flows from operating activities:Net loss

$
(544,423
)

$
(514,814
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


2,719



948Stock and warrants issued for loan and interest costs


7,416



59,540Stock and warrants issued for services


44,149



117,000Accretion of interest on convertible notes


9,682



-Changes in operating assets and liabilities:Accounts receivable


2,297



(24,082
)Inventory


(24,238
)


(132,593
)Prepaid expenses


3,632



(4,815
)Accounts payable


(4,725
)


29,894Accrued expenses


3,810



13,737Cash flows from operating activities


(499,681
)


(455,185
)Cash flows from investing activities:Payment received on lease receivable


1,143



-Cash flows from investing activities


1,143



-Cash flows from financing activities:Proceeds from the sale of common stock


607,500



18,000Proceeds on notes payable, net


200,000



(75,000
)Proceeds from the exercise of warrants and options


-



16,100Cash flows from financing activities


807,500



(40,900
)Increase (decrease) in cash


308,962



(496,085
)Cash beginning of period


65,660



819,611Cash end of period

$
374,622


$
323,526Supplemental disclosure of cash flow information:Cash paid for interest

$
17,286


$
8,253Cash paid for income taxes

$
-


$
-Non-cash financing activities:Stock and warrants issued for services and loan costs

$
51,565


$
176,540Notes and interest converted to stock

$
-


$
295,800




See notes to condensed consolidated financial statements.




4




Integrated Environmental Technologies, Ltd.
 Notes to Condensed Consolidated Financial Statements




Note 1 - Basis of presentation





The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation.  All such adjustments are of a normal recurring nature.  The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.  Certain amounts in the prior year statements have been reclassified to conform to the current year presentations.  The statements should be read in conjunction with the financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2010.





The financial statements include the Company’s wholly-owned subsidiary.  All significant inter-company transactions and balances have been eliminated.





Note 2 – Going concern





The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.  Our ability to continue as a going concern is dependent upon attaining profitable operations.  We may consider using borrowings and security sales to mitigate the effects of our cash position; however, no assurance can be given that debt or equity financing, if and when required, will be available.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue in existence.





Note 3 – Lease Receivable





We have a lease receivable relating to a capital lease of our equipment.  The lease payments are $1,250 per month over a 34-month term.  The interest rate used for the lease is 3%.  At March 31, 2011, the current portion of the lease receivable was $16,364 and the long-term portion was $25,493.





Note 4 – Building and Equipment





As of March 31, 2011, total net building and equipment assets were $335,437, which included $328,977 in leasehold improvements, $28,371 in equipment, and $21,911 in accumulated depreciation.





Note 5 – Notes payable





On April 12, 2010, the Company executed with an individual a secured promissory note for $250,000, bearing interest at a base margin rate plus 3.25% per annum, and due November 1, 2010.  The loan is currently in default, although both parties are operating under an informal extension.





5
 
 Integrated Environmental Technologies, Ltd.
 Notes to Condensed Consolidated Financial Statements


On January 5, 2011, we borrowed $200,000 from an affiliated party at an interest rate of 12%.  The principal and interest were originally due on April 15, 2011.  The maturity date was subsequently extended through July 5, 2011.





Note 6 – Convertible notes payable





As of March 31, 2011, we have $25,000 in 10% convertible debentures outstanding.





As of March 31, 2011, we have 8% convertible debentures totaling $250,000.  The notes mature between April 7, 2011 and April 12, 2011, and have a $0.60 conversion-to-common-stock rate through maturity.  After March 31, 2011, $100,000 of debenture debt was redeemed, and $150,000 is in default.  The 8% debentures included detachable warrants, and we allocated the proceeds based on the fair market value of each of the instruments.  The discount on the convertible debt totaled $38,730, and we accreted interest between the dates of sale of the convertible notes to maturity.  In the quarter ended March 31, 2011, we accreted $9,682 as interest expense and at March 31, 2011, there was no un-accreted interest.





Note 7 – Common Stock





In the quarter ended March 31, 2011, we issued 135,000 shares that were authorized and unissued at December 31, 2010.





On January 26, 2011, the Board of Directors authorized a private offering for accredited investors only to purchase up to 100 units, each unit consisting of 187,500 shares of common stock and callable warrants to purchase a total of 187,500 shares of common stock, for a total offering price of up to $1,500,000.  In the quarter ended March 31, 2011, 45 units were purchased for a total net purchase price of $607,500.  In connection with the foregoing, 8,437,500 shares and 8,437,500 warrants were issued.





On January 26, 2011, the Board of Directors approved the issuance of 100,000 shares of the Corporation’s Common Stock to a Consultant as payment for services pursuant to the renewal of an Investor Relations agreement.  On April 22, 2011, the Company issued the common stock for this liability.  Our agreement is on a month-to-month term with 100,000 shares issued for the services for each month the agreement is effective, subject to a maximum monthly cost of $10,000.





Note 8 – Options and Warrants





A summary of stock options and warrants is as follows:





Options


Average

Price


Warrants


Average

PriceOutstanding  1/1/2011


1,050,000


$
0.12



13,889,582


$
0.21Granted


-



-



10,937,500



0.28Cancelled


-



-



-



-Exercised


-



-



-



-Outstanding 3/31/2011


1,050,000


$
0.12



24,827,082


$
0.24





6


Integrated Environmental Technologies, Ltd.
 Notes to Condensed Consolidated Financial Statements


On January 26, 2011, the Board of Directors approved the issuance of 2,000,000 warrants to purchase shares of our common stock at $0.10 per share and 500,000 warrants to purchase shares of our common stock at $0.25 per share, all expiring December 31, 2011.  These warrants were issued in connection with the renewal of an independent sales representative agreement with a shareholder.  The fair value of the warrants was determined using the Black Scholes model and totaled $98,814.  The expense will be recognized over the one-year term of the agreement.  For the quarter ended March 31, 2011, we recognized $16,469 in expense.





In the quarter ended March 31, 2011, we issued warrants to purchase a total of 8,437,500 restricted shares of common stock in connection with the sale of 45 units of a private offering.  (See Note 7.)  These warrants are exercisable in four tiers at varying exercise prices, and expire December 31, 2013.





Note 9 – Commitments and Contingencies





We entered into a lease agreement for our premises on January 1, 2006 for a three-year term.  In January 2009, we agreed to renew the lease for a term of five years for $71,291 per year.  The renewal term shall be upon the same covenants, conditions, and provisions as provided in the original lease.  Rent expense for the years ended December 31, 2010 and 2009 was $71,291 per year.  Future lease amounts are $71,291 per year for 2011, 2012 and 2013.





We have employment agreements with two of our executives through March 30, 2012, which call for annual compensation of $110,000 and $130,000.





Note 10 – Subsequent Events





We have evaluated all subsequent events, and have determined that the following events require disclosure in these financial statements.





On April 5, 2011, the Lender associated with the Promissory Note Agreement dated January 5, 2011 agreed to extend the term of the agreement to July 5, 2011.  All other terms and conditions shall remain in full force and effect during this extension in term.





7
 
 Integrated Environmental Technologies, Ltd.
 Notes to Condensed Consolidated Financial Statements


On April 7, 2011, $100,000 in 8% convertible debt was redeemed as follows:  $25,000 plus accrued interest was repaid in cash; $30,000 was applied as a deposit to the purchase of EcaFlo® equipment; and $45,000 was applied to the purchase of three units of the current offering for accredited investors.  On April 21, 2011, in consideration of the individual’s agreement with these terms, the Board approved the issuance of warrants to purchase 10,000 shares of our common stock for an exercise price of $0.40 per share.  These warrants were issued on April 21, 2011 and expire on December 31, 2012.





On April 15, 2011, the Compensation Committee of the Board of Directors authorized the issuance of 50,000 shares of our common stock as a sign-on bonus to the Company’s new Executive Vice President of Sales and Business Development.  The expense was $4,000, which represented the fair market value of the shares on the date the issuance was authorized.  These shares were unissued as of the date of this filing.





On April 15, 2011, the Compensation Committee of the Board of Directors authorized the issuance of 231,650 shares of our common stock as settlement of $18,532 in outstanding debt.  This amount represented the fair market value of the shares on the date the issuance was authorized.  These shares were unissued as of the date of this filing.





On April 15, 2011, the Compensation Committee of the Board of Directors authorized the issuance of options to purchase 300,000 shares of our common stock to the Company’s legal counsel for services rendered.  These options are exercisable at $0.08 per share for a term of three years.  The value of the options as calculated using the Black-Scholes model was $17,061, and this was amount was expensed as a legal fee.





On April 21, 2011, the Board of Directors approved a compensation plan for its independent Directors, whereby the independent Directors will be compensated as follows:  cash compensation to independent directors will be in the form of an annual retainer of $10,000, to be paid quarterly with the first payment deferred until June 2011, and a meeting fee of $2,000 per meeting attended by the Director.  Cash-equivalent compensation, paid in options, will be issued at an exercise price as of the close of business on the date such compensation is authorized, and annually thereafter at an exercise price equal to the closing price on the first day of the year on which the NYSE is open for business, in amounts calculated by dividing the following sums by the exercise price:  a retainer in the amount of $4,000, and compensation for committee service in the amount of $8,000 per committee on which the independent Director serves.  In addition, the following amounts shall be paid to independent Directors as compensation, in options, according to the preceding described valuation and calculation methods, in the circumstances described:  the Chair of the Audit Committee will receive options equaling $8,000 annually; the Chair of the Compensation Committee will receive options equaling $8,000 annually; the Chair of the Nominating and Governance Committee shall receive option equaling $4,000 annually, and there will be an initial grant of options for new directors which will equal $24,000.  All options awarded to independent Directors will vest immediately.  All options issued to independent Directors include a change of control provision and a cashless exercise provision and any other standard provisions offered to officers of company.  Options issued to independent directors will have a term of ten years.





8
 
 Integrated Environmental Technologies, Ltd.
 Notes to Condensed Consolidated Financial Statements


On April 22, 2011, we issued 100,000 shares of our common stock as compensation for investor relations services.  The expense was $8,000, which represented the fair market value of the shares on the date of the issuance.





As a result of the Company’s restatement of its third quarter 2010 quarterly filing, the Company chose to offer investors in its current equity offering the right to rescind their subscription purchases.  In response to this offer of rescission, which was available for acceptance through April 20, 2011, the Company has returned to one investor $150,000 for the cancellation of 10 units of the offering, representing 1,875,000 shares of common stock and warrants to purchase 1,875,000 shares of common stock.  Additionally, it has received written acceptances of the rescission offer for another 4 units, representing $60,000, but as of the date of this filing, the Company has not received the returned stock certificates and warrants necessary in order to complete the rescissions and initiate refunds; such funds remain in escrow.





Subsequent to March 31, 2011, a total of 30 units of the offering have been purchased for a total net purchase price of $444,000.  In connection with the foregoing, 5,625,000 shares of our common stock and warrants to purchase 5,625,000 shares of our common stock have been issued.





9




FORWARD-LOOKING STATEMENTS





This document contains forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.





Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. Additionally, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 most likely do not apply to our forward-looking statements as a result of being a penny stock issuer. You should, however, consult further disclosures we make in future filing of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.





Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:




●
the unavailability of funds for capital expenditures and/or general working capital;


●
implementation of our business plan within the oil and gas industry with our distributor, Benchmark; and/or within the food processing industry with our dealer, D2W2; and/or continued entry and subsequent sales into other markets;


●
increased competitive pressures from existing competitors and new entrants;


●
increases in interest rates or our cost of borrowing or a default under any material debt agreements;


●
the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;


●
substantial dilution to our stockholders as the result of the issuance of our common stock in exchange for debt and/or equity financing;


●
potential change in control upon completion of financing agreements, if any;


●
deterioration in general or regional economic conditions;


●
adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;


●
changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;


●
loss of customers or sales weakness;


●
excessive product failure and related warranty expenses;


●
inability to achieve future sales levels or other operating results; and


●
operational inefficiencies in distribution or other systems.




10




For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Part II, Other Information, Item 1A, Risk Factors” in this document and in our Annual Report on Form 10-K for the year ended December 31, 2009.





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.





The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report. References in the following discussion and throughout this quarterly report to “we”, “our”, “us”, “IET”, “the Company”, and similar terms refer to Integrated Environmental Technologies, Ltd. and its wholly-owned subsidiary, IET, Inc., unless otherwise expressly stated or the context otherwise requires.





OVERVIEW





Integrated Environmental Technologies, Ltd. is a life sciences-focused technology company that commercializes innovative technologies which are focused on the enhancement of the environment and the health, safety, and well-being of current and future generations.  Our wholly-owned subsidiary, IET, Inc., designs, manufactures, markets, sells, and installs proprietary EcaFlo® equipment, featuring electro-chemical activation (“ECA”) technology, in the United States and throughout the world.  IET’s EcaFlo® technology is a disruptive technology in that it requires customers to re-think the manner in which traditional, hazardous chemicals are utilized in day-to-day cleaning, sanitizing and disinfecting.





The core of our business is the ECA technology.  Our equipment and the solutions our equipment produces remain the focus of our revenue strategy.  ECA technology is a process of passing a diluted saline solution and ordinary water through an electrolytic cell in order to generate, by electrochemical energy conversion, environmentally-responsible, highly-active, meta-stable solutions which possess electron-donor or electron-acceptor properties known as Catholytes and Anolytes.  We produce and sell ECA equipment and related supplies under the EcaFlo® trade name, and in addition we sell and distribute the solutions produced by our equipment through dealers and distributors under the EcaFlo® Anolyte (EcaFlo® Excelyte®, as trademarked by Benchmark Energy Products, LLC) and EcaFlo® Catholyte trade names.  Under certain commercial agreements, we sell equipment and support for a fixed price and then receive ongoing payments (royalties) for solutions produced under the agreement.





At the end of 2010, we determined that our sales of EcaFlo® equipment were being impacted (i.e.: delayed) due to the economic recession and because our customers were experiencing certain capital expense restrictions in their own operations.  We developed a new business model to address this situation, called the Systems Service Agreement model.  Our new business model contains three different manners by which our customers may immediately obtain the benefits of utilizing our EcaFlo® solutions as generated by our EcaFlo® equipment:





1)
Traditional Sales – sale of EcaFlo® devices to customers;


2)
Systems Service Agreement – “place” EcaFlo® devices with customers under a period-of-time (monthly for “x” months) contract; the monthly charge for IET’s EcaFlo® equipment includes use of the machine, service, and technology fee charges, and IET maintains ownership of the equipment.  In this manner, customers can immediately begin saving money by replacing traditionally-used chemicals with EcaFlo® solutions, at a cost-savings with no capital expenditure on their part; and


11
  3)
Dealer/Distributor – a continuation of our EcaFlo® equipment and solutions sales through our existing and expanding Dealer/Partner network.





We have been highly focused on commercialization of our EcaFlo® products in the oil and gas industry, with marked progress during 2010 as our dealer/distributor Benchmark Energy Products, LLC (“BEP”) successfully provided our fluids as their branded product called “Excelyte®” for use in the hydraulic fracture of natural gas wells.  Since initial tests began, it has been consistently demonstrated that “Excelyte®” can be successfully used as a “GREEN” biocide for down-hole fracs, and the mixtures have been proven to be more effective – and safer – than other, competing chemical technologies.  BEP currently owns nineteen EcaFlo® devices, located in two separate regional distribution centers owned and operated by BEP.





Our solutions have developed strong commercial interest and substantial market potential:





·
EcaFlo® Anolyte – a strong oxidizing solution formed from naturally occurring elements that kills unwanted microorganisms and pathogens, and


·
EcaFlo® Catholyte – an anti-oxidizing, mildly alkaline solution ideal for use as a degreaser, cleaner, and detergent.




EcaFlo® Anolyte, an EPA-registered product, could potentially replace all applications for chlorine-related antimicrobials from an efficacy and efficiency standpoint.  Our commercialization of this product is premised upon the compelling economics, given the low cost to produce Anolyte and the environmentally friendly nature of the product.  The product can be as much as 100 times more effective than the bleach solutions traditionally used to mitigate pathogens in food processing, water disinfection, and fungicidal control.  The product quickly destroys microorganisms and pathogens on fruits, vegetables, and processing equipment without leaving a harmful residue.





Results of Operations for the Three Months Ended March 31, 2011 and 2010





The following summarizes selected items from the statement of operations at March 31, 2011 compared to March 31, 2010.





SALES AND COST OF SALES:





Revenue





Our sales for the three months ended March 31, 2011 were $39,510, a decrease of 42% over sales of $67,937 in the three months ended March 31, 2010.  The decrease in sales was the result of a reduction in finalized sales contracts for this period.




12




Gross profit / Cost of sales





Our cost of sales for the three months ended March 31, 2011 was $19,814, a decrease of $13,547, or 41%, from $33,361 for the three months ended March 31, 2010.  The decrease in our cost of sales is as a result of a decrease in sales for this period.





As of the three months ended March 31, 2011 and 2010, gross profit margins were 50% and 51%, respectively.





General and Administrative Expense





General and administrative expense for the three months ended March 31, 2011 was $329,931, an increase of $74,124, or 29%, from $255,807 for the three months ended March 31, 2010.  The increase in general and administrative expense was the result, in part, of utilizing the services of financial consultants to assist us in developing plans for financings.





Sales and Marketing Expense





Sales and marketing expense for the three months ended March 31, 2011 was $122,714, a decrease of $20,298, or 14%, from $143,012 for the three months ended March 31, 2010.  Stock issued to sales personnel in the quarter ended March 31, 2010 resulted in higher sales and marketing expense for that period.





Research and Development Expense





Research and development expense for the three months ended March 31, 2011 was $74,689, a decrease of $14,791, or 17%, from $89,480 for the three months ended March 31, 2010.  The decrease in research and development expense was primarily the result of a decrease in testing supplies purchased during this period for research and development purposes.





Loss from Operations





The loss from operations for the three months ended March 31, 2011 was $507,638, an increase of $53,915, or 12%, from $453,723 for the three months ended March 31, 2010.  The increase in the loss from operations was the result of increases in general and administrative expense coupled with the decrease in sales revenue during this period.





Finance Fees and Other





Finance fees and other for the three months ended March 31, 2011 were $9,310, a decrease of $43,528, or 82%, from $52,838 for the three months ended March 31, 2010.  Stock and warrant issuances associated with a number of temporary working capital loans in the quarter ended March 31, 2010 resulted in higher finance fees for that period.




13




Interest Expense





Interest expense for the three months ended March 31, 2011 was $27,475, an increase of $19,222, or 233%, from $8,253 for the three months ended March 31, 2010.  The increase in interest expense was the result of outstanding notes payable accruing interest during this period.





Net Loss





Our net loss for the three months ended March 31, 2011 was $544,423, an increase of $29,609, or 6%, from $514,814 for the three months ended March 31, 2010.





Liquidity and Capital Resources





At March 31, 2011, we had negative working capital.  As of the date of this filing, our cash balance was approximately $172,000.  Our cash on hand is not sufficient to meet our operating requirements through the quarter ending June 30, 2011.  While we are aggressively pursuing potential equity and/or debt investors, and are in the process of negotiating an extension to certain convertible debentures that are currently in default, there can be no assurance that we will be successful in our efforts.





Going Concern





The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern.  Our ability to continue as a going concern is dependent on attaining profitable operations.  Our cash position may be inadequate to pay all of the costs associated with testing, production and marketing of products.  Management will consider borrowings and security sales to mitigate the effects of our cash position; however, no assurance can be given that debt or equity financing, if and when required, will be available or, if available, will be on terms favorable to us.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue existence.





Critical Accounting Policies and Estimates





Our discussion of financial conditions and results of operations is based upon the information reported in our financial statements.  The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities at the date of our financial statements.  We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time.  Actual results may vary from our estimates due to changes in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors.  Our significant estimates are related to the valuation of warrants and options.




14




Revenue Recognition





Revenue is recognized when persuasive evidence of an arrangement exists, title and risk of ownership have passed, the sales price is fixed or determinable and collectibility is probable.  Generally, these criteria are met at the time the product is shipped.  Provisions for estimated returns, rebates and discounts are provided for at the time the related revenue is recognized.  Freight revenue billed to customers is included in sales and the related shipping expense is included in cost of sales.  Service revenue is recognized in the period the service is performed or ratably over the period of the related service contract.





When we lease our equipment, our accounting involves specific determinations, which often involve complex provisions and significant judgments.  The four criteria of the accounting standard that we use in the determination of a sales-type lease or operating-type lease are 1) a review of the lease term to determine if it is equal to or greater than 75 percent of the economic life of the equipment; 2) a review of the minimum lease payments to determine if they are equal to or greater than 90 percent of the fair market value of the equipment; 3) a determination of whether or not the lease transfers ownership to the lessee at the end of the lease term; and 4) a determination of whether or not the lease contains a bargain purchase option. If the lease transaction meets one of the four criteria, then it is recorded as a sales-type lease; otherwise, it is recorded as an operating-type lease.  Additionally, we assess whether collectability of the lease payments is reasonably assured and whether there are any significant uncertainties related to costs that we have yet to incur with respect to the lease.





When a customer enters into a sales-type lease agreement, the sales and cost of sales are recognized at the inception of lease.  The sales-type lease consists of the sum of the total minimum lease payments less unearned interest income and estimated executory cost.  Minimum lease payments are part of the lease agreement between the Company (lessor) and the customer (lessee).  The discount rate implicit in the sales-type lease is used to calculate the present value of minimum lease payments.  The minimum lease payment consists of the gross lease payments net of executory costs and contingencies, if any.  Unearned interest income is amortized over the lease term to produce a constant periodic rate of return on net investment in the lease.  While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income.





When a customer enters into an operating-type lease agreement, equipment lease revenue is recognized on a straight-line basis over the life of the lease, while the cost of the leased equipment is depreciated over its estimated useful life.





Off-Balance Sheet Arrangements





As of March 31, 2011, we did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.




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Item 3. Quantitative and Qualitative Disclosures About Market Risk





Concentration of Credit Risk





We sell our products to customers in diversified industries and geographical regions.  During the quarters ended March 31, 2011 and 2010, one customer who is a related party represented 35% and 43%, respectively, of our sales.  We evaluate the creditworthiness of our customers, and we typically require a deposit of 50% of the total purchase price with each EcaFlo® equipment order.





We evaluate the collectability of accounts receivable regularly and it is our policy to record an allowance when the results of the evaluation indicate an increased risk related to the customer's ability to meet their financial obligations.





Item 4T. Controls and Procedures.





Evaluation of Disclosure Controls and Procedures





Our Chief Executive Officer and Principal Financial Officer, William E. Prince, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.  Based on that evaluation, Mr. Prince concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Control Over Financial Reporting





There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





PART II – OTHER INFORMATION





Item 1. Legal Proceedings.





We are not a party to any material legal proceedings.





Item 1A. Risk Factors.





FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS





The risk factors listed on our 2010 Form 10-K on pages 12 to 15, filed with the Securities Exchange Commission on March 30, 2011, are hereby incorporated herein by reference.




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Item 2. Recent Sales of Unregistered Securities





A.
Stock Sales Pursuant to Subscription Agreements





As of March 31, 2011, pursuant to a private offering, we issued a total of 8,437,500 shares of our common stock in connection with the sale of a total of 45 units to eight (8) non-affiliated, accredited investors at $15,000 per unit, for a total net purchase price of $607,500.  Each unit consisted of 187,500 shares of our common stock and warrants to purchase 187,500 shares of our common stock.  The warrants are callable as a block, are exercisable as a block, and are allocated in four successive tiers.  Each tier consists of warrants to purchase 46,875 shares of common stock.  The warrants of each of the four tiers are exercisable at $0.20, $0.25, $0.35, and $0.50, respectively, and are callable per tier at prices equal to the 10-day volume weighted average share price for our common stock of $0.25, $0.3125, $0.42, and $0.60, respectively.  Failure of a shareholder to exercise and purchase any called tier of warrants within 30 days shall result in a forfeiture of all remaining tiers.  In addition, the Company must effectively register the shares comprising part of the units and the shares underlying the warrants within 120 days following termination of the private offering, which has been extended.  The penalty to the Company in the event it fails to effectively register the aforesaid shares shall be a reduction of the penalty for any investor who fails to purchase shares of any called tier to a forfeiture of only the tier called and not the successive tiers.  In addition, the term of all warrants contained in the tiers shall then be extended two years to December 31, 2015.





B.
Stock Issuances Pursuant to Consulting Agreements with Accredited Non-Affiliates





On January 6, 2011, we issued 135,000 shares of common stock that were authorized and unissued as of December 31, 2011.





On March 31, 2011, we authorized the issuance of 100,000 shares of common stock as compensation in lieu of cash for investor relations services provided pursuant to an Investor Relations agreement.  The 100,000 shares were subsequently issued on April 22, 2011.





C.
Warrant Issuances





On January 26, 2011, our Board of Directors approved the issuance of 2,000,000 warrants to purchase shares of our common stock at $0.10 per share, and 500,000 warrants to purchase shares of our common stock at $0.25 per share, all expiring December 31, 2011, in connection with the renewal of an Independent Sales Representative Agreement with a non-affiliated, accredited consultant.





As of March 31, 2011, as part of the sale of units discussed in Item 2A above, we issued warrants to purchase a total of 2,109,375 shares at $0.20 per share, 2,109,375 shares at $0.25 per share, 2,109,375 shares at $0.35 per share, and 2,109,375 at $0.50 per share.





Subsequent Issuances





D.
Stock Sales Pursuant to Subscription Agreements





Since March 31, 2011, pursuant to a private offering, we issued a total of 5,625,000 shares of our common stock in connection with the sale of a total of 30 units to seven (7) non-affiliated, accredited investors at $15,000 per unit, for a total net purchase price of $444,000.  Reference is made to paragraph 2A above for a full discussion on the common stock and warrants comprising units sold pursuant to subscription agreement.




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E.
Stock Issuances for Services





On April 15, 2011, the Compensation Committee of the Board of Directors approved the issuance of 50,000 shares of the Company’s common stock as a sign-on bonus to the Company’s new Executive Vice President of Sales and Business Development.  The 50,000 shares were unissued as of the date of this filing.





On April 15, 2011, the Compensation Committee of the Board of Directors approved the issuance of 231,650 shares of the Company’s common stock to the Company’s legal counsel as settlement of outstanding debt.  The 231,650 shares were unissued as of the date of this filing.





On April 21, 2011, we authorized the issuance of 100,000 shares of common stock to an accredited non-affiliate as compensation in lieu of cash for investor relations services provided pursuant to an Investor Relations agreement.  The shares were issued on April 22, 2011.





F.
Warrant Issuances





On April 15, 2011, the Compensation Committee of the Board of Directors approved the issuance of options to purchase 300,000 shares of the Company’s common stock to the Company’s legal counsel for services rendered.  These options are exercisable at $0.08 per share for a term of three years.





On April 21, 2011, the Board of Directors approved the issuance of warrants to purchase 10,000 shares of the Company’s common stock to a non-affiliated accredited investor in connection with a convertible note.  These warrants are exercisable at $0.40 per share and expire on December 31, 2012.





Since March 31, 2011, as part of the sale of units of a private offering discussed in Item 2D above, we issued warrants to purchase a total of 1,406,250 shares at $0.20 per share, 1,406,250 shares at $0.25 per share, 1,406,250 shares at $0.35 per share, and 1,406,250 at $0.50 per share.





We believe that the issuance of the above securities is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule 506.  The recipients of the securities are accredited investors, all of whom were afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make their investment decisions, including the financial statements and 34 Act reports.  We reasonably believed that the recipients, immediately prior to the issuance of the securities, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investments.  The recipients had the opportunity to speak with our management on several occasions prior to their investment decisions.





Issuer Purchases of Equity Securities





The Company did not repurchase any of its equity securities during the quarter ended March 31, 2011.





Item 5. Other Information.





None.




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Item 6. Exhibits.





Exhibits




Incorporated by referenceExhibit

number

Exhibit description

Filed

herewith

Form

Period

ending

Exhibit

No.

Filing

date3(i)(h)

Articles of Incorporation of Integrated Environmental Technologies, Ltd.



8-K

2/18/08

3(i)(h)

3/10/083(ii)(c)

Bylaws of Integrated Environmental Technologies, Ltd., a Nevada corporation



8-K

2/18/08

3(ii)(c)

3/10/083(ii)(d)

Amendments to Amended and Restated Articles of Incorporation and By-laws



8-K

9/30/10

(d)(i),(ii),

(iii)(iv)

10/6/1010.18

Stock Acquisition Agreement with Benchmark Performance Group dated June 20, 2007



8-K

9/30/10

10.1

8/21/0710.19

Exclusive License and Distribution Agreement with Benchmark Performance Group dated June 20, 2007



8-K

9/30/10

10.2

8/21/0710.2

Registration Rights Agreement with Benchmark Performance Group dated June 20, 2007



8-K

9/30/10

10.3

8/21/0731

Certification pursuant to Section 302 of the Sarbanes-Oxley Act

X32

Certification pursuant to Section 906 of the Sarbanes-Oxley Act

X
  19





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.

(Registrant)By:
/s/ William E. PrinceWilliam E. Prince, Chief Executive Officer

and Principal Financial Officer (on behalf of the

registrant and as Principal Accounting Officer)Date:  May 16, 2011




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